If you run a brand loyalty program, channel loyalty program, or influencer loyalty program, you must beware of rising loyalty frauds. As per the recent Forter Fraud Index report, in 2021 alone, loyalty fraud increased by 89 percent on a year-on-year basis. It is currently estimated at one billion dollars every year.

Loyalty fraud happens when one or more channel partners do not transfer loyalty points to their peers and redeem the points by themselves. It also happens when customers find a way to redeem single-use coupons more than once as well as when employees don’t use their loyalty points but give those to others. In some cases, it occurs when hackers gain access to loyalty platforms and compromise loyalty programs.

As loyalty points and rewards have real financial value, abusing the points and loyalty programs’ rules will not only reduce trust in a brand but can compromise sensitive data and personal information of customers, channel partners, influencers, and employees.

This blog post discusses the common types of loyalty fraud and the tried-and-tested methods to prevent loyalty fraud. Read on and thank us later.

Forms of loyalty fraud

Loyalty fraud can happen in many ways. But the most common form is channel loyalty fraud.

Some channel partners redeem loyalty points instead of transferring the points to other channel partners below them. Even though some frauds are made unknowingly or out of ignorance, a majority of them happen knowingly.

Channel loyalty fraud doesn’t always happen on a large scale. One channel partner or a small group of channel partners can wreak havoc on a company’s loyalty program.

Apart from that, customers and employees can circumvent rules and abuse loyalty programs for personal gain. In some instances, hackers commit loyalty fraud by penetrating loyalty platforms and wiping out the available points.

Methods to Prevent Loyalty Frauds

When it comes to preventing loyalty fraud, technology plays an immensely crucial role. Sophisticated loyalty technologies can detect fraudulent activities and prevent loyalty fraud from taking place. Here are seven effective methods to keep fraudsters at bay.

1. Choose a sophisticated loyalty platform

A reliable loyalty platform comes with sophisticated features such as a dual wallet to prevent loyalty fraud. A dual wallet is a feature that enables brands to confer loyalty points in two categories to their channel partners. One is the primary wallet that will have the points that a specific channel partner can redeem for themselves. And the other one is the secondary wallet that will store a certain number of points and credit the suitable points to the subsequent channel partners under them.

LoyaltyXpert’s dual wallet feature won’t allow a channel sales partner to redeem the points in the secondary wallet for themselves. Every time an invoice is approved by a channel partner, the system will check in the backend if the other customer/purchaser is eligible for points. If yes, that many points will be deducted from the approver’s secondary wallet. LoyaltyXpert’s platform also provides many more sophisticated features such as a one-time QR Code scan to prevent fraud of multi-scan, a KYC update to prevent duplicity, a verification system for points, location-based reports while scanning, and many more.

2. Create different groups

Create customer segments to ensure that specific customers redeem the rewards as per their groups. By segmenting, you can offer different loyalty rewards to different groups of people such as distributors, dealers, stockists, wholesalers, influencers, customers, and more. This will eliminate confusion and prevent loyalty fraud as it will ensure that the right groups are rewarded with the right loyalty points. LoyaltyXpert’s software can enable you to create separate customer groups and provide the right rewards to the right people.

3. Verify KYC documents

Companies need to be extremely particular about KYC starting from verifying the original identification such as Aadhar card, PAN card, and other crucial documents. Verify the KYC documents to prevent duplicity. Apart from that, verify email addresses to prevent fraud. If a customer, channel partner, or employee signs up more than once by using the same email address or by creating email aliases, then they can circumvent basic loyalty platforms and manipulate loyalty programs and reward points. The best way to prevent that is to verify every email address before completing the registration.

4. Re-think your loyalty program

If your rewards or loyalty points are extremely easy to manipulate, then it would attract fraudsters to abuse your loyalty programs. But if you make it extremely difficult to tamper with your rewards, then it will inhibit fraudsters from abusing your loyalty programs. A pending period on the loyalty platform can prevent the snags associated with product returns and loyalty point manipulation. A detailed redemption requirement will also prevent fraudsters from abusing reward points with duplicate accounts.

5. Reward purchases and engagement instead of invites

If you have a referral program then you must be extremely aware of the prevalent referral frauds. Some fraudsters invite themselves many times over and redeem the referral points. Many others send the invites to their friends and family members and exploit the loopholes in the referral programs. To prevent referral fraud, you must define clear rules for fraud-free referral programs and ensure that every referral is unique and verified.

6. Use a balanced mix of financial and non-financial rewards

While financial loyalty rewards are extremely lucrative for fraudsters and hackers, non-financial rewards aren’t worth the hassle for them as they don’t yield direct financial benefits, which can be redeemed immediately.

If you solely focus on providing financial rewards, then you are more likely to attract the attention of non-scrupulous people. But by using a balanced mix of financial and non-financial rewards, you can inhibit them from tampering with your loyalty platform. Non-financial rewards include point systems, free products, or charity donations. High-ticket loyalty points can attract fraudsters and tempt them to break into the platform and redeem the points. To avoid that, limit the redemption of the loyalty points to specific quantities.

7. Monitor customer behaviors

Monitoring customer behaviors is one of the best ways to prevent loyalty fraud. You can use sophisticated monitoring tools to help you detect unusual behaviors. Some of the common anomalies are frequent cancelation of orders, orders with extremely high or low values, and failed orders with huge unused points. 

Taking everything into consideration

With loyalty frauds rising rampantly every year, it’s extremely crucial to use sophisticated technologies to prevent fraudulent activities and ensure that the right people get the right rewards. At LoyaltyXpert, we have a sophisticated platform and an array of features to detect and prevent loyalty fraud. If you’re looking to eliminate loyalty fraud, then get a free trial to know how you can create tamper-proof loyalty programs.